Global warming, poverty, and other social problems in various aspects nowadays can be said that they are somewhat results from the economic activities in the past, focusing on maximizing profit without considering any impacts to the environment and the global society, which are indeed counted as a cost as well. If the business sector continues operating their enterprises regardless of the environmental and social cost, social problems will definitely increase more and more till those enterprises can't run their businesses anymore. This concern results in emergence of new type of entrepreneurs who aim to create a balance between the return to the business and the return to the society. While traditional entrepreneurs frequently act in a socially responsible manner, but their efforts are only indirectly attached to social problems. Social entrepreneurs are different because their earned income strategies are tied directly to their mission. They sell mission-driven products and services that have a direct impact on a specific social problem and are driven by a double bottom line, a virtual blend of financial and social returns. Profitability is still a goal, but it is not the only goal, and profits are re-invested in the mission rather than being distributed to shareholders (Ashton, 2010) (Clark, 2009).
Get your grade
or your money back
using our Essay Writing Service!
To start investigating the concept of entrepreneurship, it should be traced back to its economic background, following by its developments and evolution. And the most important thing is to look inside those organizations which successfully help establishing this kind of social innovation.
Entrepreneurship, Innovation and Uncertainty
The economist who is most closely associated with the term entrepreneurship or entrepreneur was Joseph Schumpeter (Dees, 1998) (Brem, 2008). He has most prominently drawn attention to the innovating entrepreneur. Schumpeter stressed the role of the entrepreneur as an innovator who implements change in an economy by introducing new goods or new methods of production (Sorbel, 2011). In the Schumpeter's view, the entrepreneur is a disruptive force in an economy. Schumpeter emphasized the beneficial process of creative destruction, in which the introduction of new products results in the obsolescence or failure of others. (Brem, 2008)
Schumpeter wrote in Capitalism, Socialism, and Democracy (1950) that the really relevant problem is not how capitalism administers existing structures, but how it creates and destroys them. He called this process creative destruction, and maintained that it is the essence of economic development. In other words, development is a disturbance of the circular flow. It occurs in industrial and commercial life, not in consumption. It is a process defined by the carrying out of new combinations in production. It is accomplished by the entrepreneur.
As Shefiu summarized Schumpeter's concept of entrepreneur in Entrepreneuership and Selling : A Review (2010) :
the entrepreneur is the innovator who implements change within markets through the carrying out of new combinations. The carrying out of new combinations can take several forms; 1) the introduction of a new good or quality thereof, 2) the introduction of a new method of production, 3) the opening of a new market, 4) the conquest of a new source of supply of new materials or parts, 5) the carrying out of the new organization of any industry (Shefiu, 2010 p.73).
Joseph Schumpeter equated entrepreneurship with the concept of innovation applied to a business context. That is to say, the entrepreneur moves the market away from equilibrium. Schumpter's definition also emphasized the combination of resources. But the managers of already established business are not entrepreneurs to Schumpeter.
While the entrepreneur could not play much of a role in a state of equilibrium, Schumpeter did see the entrepreneur as a significant force in the economy. He was careful to make the distinction between inventions and innovations. For Schumpeter the entrepreneur was the great innovator. As innovator, the entrepreneur destroyed the existing equilibrium state. Schumpeter helped to romanticize the vision of the entrepreneur as an aggressive business tycoon, or as someone who clearly contributes to human betterment by introducing a new product, or a new way of doing things that expands options and lowers costs. The emphasis he put on innovation seemed to narrow the concept of the entrepreneur since it left out the more humble types of changes, directly or indirectly, that occur in economic activities. The imagery behind Schumpeter's entrepreneur is of a man who introduces striking changes into everyday economic activities (Dees, 1998) (Brem, 2008).
Always on Time
Marked to Standard
For Drucker, one of Schumpeter's students (Business Week, 2005), his idea builds on Schumpeter's premise of entrepreneurship. In Drucker's term, the essence of entrepreneurship is motivated by doing something different rather than doing better what already is being done. In Innovation and Entrepreneurship Peter F. Drucker (2007) devotes sections and chapters to the seven sources of innovative opportunity, the principles of innovation, the bright idea, the new venture, and a pair of entrepreneurial strategies for established firms, Fustest and the Mostest, and Hit Them Where They Ain't. This is nothing but a restatement of Schumpeter's idea that profits result only from the innovator's advantage and therefore disappear as soon as the innovation has become routine.
In addition, Peter F. Drucker took the ideas set forth by Schumpeter one step further. He argued that Schumpeter's type of innovation can be systematically undertaken by managers to revive business and nonbusiness organizations. By combining managerial practices with the acts of innovation, Drucker argued, business can create a methodology of entrepreneurship that will result in the institutionalization of entrepreneurial values and practice. Drucker defined the term entrepreneurship as a systematic, professional discipline available to anyone in an organization that brings our understanding of the topic to a new level. He demystified the topic, contending that entrepreneurship is something that can be strategically employed by any organization at any point in their existence, whether it is a start-up or a firm with a long history. Drucker understood entrepreneurship as a tool to be implemented by managers and organizational leaders as a means of growing a business (Dees, 1998).
On the other hand, Frank Hyneman Knight, one of the most illustrious economist of the twentieth century (Jarvis, 2010), emphasize the entrepreneur's role in bearing the uncertainty of market dynamics. Entrepreneurs are required to perform such fundamental managerial functions as direction and control.
According to Knight, the true uncertainty is the only source of profits, since profits disappears as soon as change becomes predictable or can be hedged and changed into costs. The introduction of Knightian uncertainty can reduce diminishing returns to innovative investment. It can be done by R&D cooperation, that is, by creating social capital through R&D networks. Therefore, it can be said that uncertainty makes perpetual innovation more likely. And growth and uncertainty are positively related. Knight saw rates of return on entrepreneurial investment vary around an average and it is the relative entrepreneurial ability that is rewarded. Entrepreneurs also create a great deal of uncertainty through Schumpeterian innovation which creates confusion in the market. Lack of entrepreneurship means that we are locked up in old structures, interpretations and understandings. So to speak, entrepreneurial activation is positive concerned with uncertainty. (Brem, 2008, Schoemaker, 2002)
Morevoer, Frank H. Knight also made a famous distinction between risk and uncertainty. In Knight's interpretation, risk refers to situations where the decision-maker can assign mathematical probabilities to the randomness which he is faced with. In contrast, Knight's uncertainty refers to situations when this randomness cannot be expressed in terms of specific mathematical probabilities. As he stated in Risk, Uncertainty, and Profit (1921)
Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated.... The essential fact is that 'risk' means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating.... It will appear that a measurable uncertainty, or 'risk' proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all (Knight, 1921 p.26).
In Knight's works, uncertainty plays a significant role in the entrepreneurial process. Facing uncertainty, the entrepreneurs exercises their judgement. For Knight, entrepreneurs infer largely from their experiences of the past, somewhat in the same way as we deal with simple problems such as estimating distances, weights or physical magnitudes when measuring instruments are not available. Furthermore, entrepreneurs bet on their judgements. Entrepreneurs try to determine what kinds of workers to be hired, what orders to be given, which factors to be utilized, and how their employees will be used. They also predict future demand conditions which are partly depended upon the actions of competitors. Having made their determinations and predictions, entrepreneurs proceed to make judgements concerning the profitability of alternative actions. When they ultimately decide to hire factors and produce a product for sale, they are in effect betting that their judgements on the value of the factors they employ are more accurate than the judgements of others who are unwilling to bid as high as them. In this way, the factors of production come to be controlled and allocated by those who have the most faith and trust in their judgements. However, estimates or judgements are liable to stumble. Consequently, profit arises from error or imperfect foresight made by the entrepreneur. The level of profit is not stipulated in any agreement nor fixed in an exchange but is contingent upon the success of an enterprise or undertaking. (Knight, 1921)
The Origin of Social Entrepreneurship
This Essay is
a Student's Work
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.Examples of our work
Let's trace back to the very beginning period of social entrepreneurship movement. As Brock & Steiner (2009) introduced the term social entrepreneurship in their research paper Social Entrepreneurship Education : Is It Achieving The Desired Aims? that it was first coined in the 1980' by William Bill Drayton, founder of Ashoka, a nonprofit organization that supports social entrepreneurs through a venture capital approach. Therefore, it's worthwhile to examine Ashoka's definition of Social Entrepreneurship. From Ashoka (2011) website, it states that :
Social entrepreneurs are individuals with innovative solutions to society's most pressing social problems. They are ambitious and persistent, tackling major social issues and offering new ideas for wide-scale change. Rather than leaving societal needs to the government or business sectors, social entrepreneurs find what is not working and solve the problem by changing the system, spreading the solution, and persuading entire societies to take new leapsâ€¦as entrepreneurs change the face of business, social entrepreneurs act as the change agents for society, seizing opportunities others miss and improving systems, inventing new approaches, and creating solutions to change society for the better. While a business entrepreneur might create entirely new industries, a social entrepreneur comes up with new solutions to social problems and then implements them on a large scale.
While its definition in education sector can be traced back to the very first course in social entrepreneurship at Harvard University in the mid 1990' which was conducted by J. Gregory Dees (Brock & Steiner, 2009), who is now adjunct professor and faculty director at Duke University's Fuqua School of Business Center for the Advancement of Social Entrepreneurship (CASE), has given one of the most cited definition for social entrepreneurship phrase. As he says in The Meaning of Social Entrepreneurship (1998) :
For social entrepreneurs, the social mission is explicit and central. This obviously affects how social entrepreneurs perceive and assess opportunities. Mission-related impact becomes the central criterion, not wealth creation. Wealth is just a means to an end for social entrepreneurs. With business entrepreneurs, wealth creation is a way of measuring value creation. This is because business entrepreneurs are subject to market discipline, which determines in large part whether they are creating value. If they do not shift resources to more economically productive uses, they tend to be driven out of business.
Dees (1998) identifies five criteria that social entrepreneurs possess: adopting a mission to create and sustain social value; recognizing and relentlessly pursuing new opportunities to serve that mission; engaging in a process of continuous innovation, adaptation and learning; acting boldly without being limited by resources currently in hand; and exhibiting a heightened sense of accountability to the constituencies served and to the outcomes created. Dees argues that the closer an individual gets to satisfying these criteria, the more that individual fits the model of a social entrepreneur. But he also recognizes that in many ways, the literature on social entrepreneurship describes
...a set of behaviours that are exceptional. These behaviours should be encouraged and rewarded in those that have the capabilities and temperament for this kind of work....Should everyone aspire to be a social entrepreneur? No. Not every social leader is well-suited to being entrepreneurial. The same is true in business. Not every business leader is an entrepreneur in the sense that Say, Schumpeter, Drucker and Stevenson had in mind. (Dees, 1998 p.6).
Roger L. Martin and Sally Osberg (2007) explain the characteristics of entrepreneurs in Social Entrepreneurship : The Case for Definition that they are attracted to the unpleasant equilibrium, seeing opportunities to provide new solutions, goods, services, or process. They see this condition as an opportunity to create something new, while many others see it as a threat. Their solutions originate from the unique set of personal characteristics they bring to the situation - inspiration, creativity, direct action, courage, and fortitude. These characteristics are fundamental to the process of innovation. In many cases, they might be motivated to do this because they are unsatisfied users or because they empathize with those unsatisfied users.
Besides, most entrepreneurs have an ability to think creatively and develop a new solution that dramatically breaks with the existing one. They wouldn't try to optimize the current system with minor change, but find a wholly new way of conquering the problem. They can find a completely new and creative solution to the problem at hand.
Once inspired by the opportunity, most entrepreneurs always take direct action. Rather than trying to demand somebody else to solve the problem, they take direct action by creating new products or services and the venture to advance it. Definitely, entrepreneurs have to influence others -- investors, friends, family, teammates, employees, and finally customers, to buy into their innovative ideas. The point is to differentiate the entrepreneur's engagement in direct action from other indirect or supportive actions.
Like commercial enterprises, social entrepreneurs can't avoid facing risk and uncertainty. They do demonstrate courage throughout the process of innovation, taking risk and facing failure. This often requires entrepreneurs to take big risks and do things that others think are impossible. Finally, entrepreneurs are tolerant to drive their creative solutions through to fruition and market adoption. No entrepreneurial venture proceeds without unexpected situations, and the entrepreneur needs to be able to find creative ways around those threats and challenges. (Martin & Osberg, 2007)
In spite of the varying definitions of social entrepreneurship, one commonality emerges in almost every description, that is, problem-solving nature of social entrepreneurship is prominent, and the corresponding emphasis on developing and implementing initiatives that produce measurable results in the form of changed social outcomes and/or impacts.
Let's take the most famous social organizations for examples, Ashoka, the Skoll Foundation, and the Schwab Foundation for Social Entrepreneurship, which employ success story models. All three are focused on the promotion of social entrepreneurship worldwide. While their tactics differ somewhat, the three organizations adopt the same general strategy of recognizing and supporting specific individuals and their projects. Their aim is to aid these individuals in expanding their work, and thereby to inspire others to become social entrepreneurs as well.
Ashoka was founded in 1980 in USA by Bill Drayton, a former McKinsey consultant, administrator in the Environmental Protection Agency, and community organizer in India. The organization's mission is to shape a citizen sector that is entrepreneurial, productive and globally integrated, and to develop the profession of social entrepreneurship around the world. In 1981, Ashoka elected the first Ashoka Fellows in India, started with an annual budget of $50,000, grown to nearly $30 million in 2006. Now Ashoka have elected over 2,500 leading social entrepreneurs as Ashoka Fellows, providing them with living stipends, professional support, and access to a global network of peers in 70 countries. These fellows inspire others to adopt and spread their innovations - demonstrating to all citizens that they too have the potential to be powerful changemakers.
It was founded on the premise that the most effective way to promote positive social change is to invest in social entrepreneurs with innovative solutions that are sustainable and replicable, both nationally and globally. Its logo, the oak tree, a strong and sturdy tree, represents the power of Ashoka's commitment and contributions to building the profession of social entrepreneurship. A broad-spreading tree, it is symbolic of those dimensions of Ashoka's programs that select, launch and foster collaborations among social entrepreneurs around the world. It was named to honor Ashoka, the Indian leader who unified the Indian subcontinent in the 3rd century BC, renouncing violence and dedicating his life to social welfare and economic development. For his creativity, global mindedness and tolerance, Ashoka is renowned as the earliest example of a social innovator.
Its vision is to envision everyone a changemaker world. A world that responds quickly and effectively to social challenges, and where each individual has the freedom, confidence and societal support to address any social problem and drive change. Its mission is to strive to shape a global, entrepreneurial, competitive citizen sector: one that allows social entrepreneurs to thrive and enables the world's citizens to think and act as changemakers.
To ensure that the leading ideas for social change are fully developed and sustained, Ashoka have designed an approach that offers critical interventions on three levels -- the individual, the group, and the sector. First, Ashoka supports individual social entrepreneurs financially and professionally throughout their life cycle. Second, it brings communities of social entrepreneurs together to help leverage their impact, scale their ideas, and capture and disseminate their best practices. Finally, it helps build the infrastructure and financial systems needed to support the growth of the citizen sector and facilitate the spread of social innovation globally. All of Ashoka's programs in these three areas contribute to Ashoka's vision and mission; all understand the historical transformation of the citizen sector taking place and are building upon that understanding. None of its programs exist to provide services exclusively. Ashoka's three levels are mutually reinforcing its vision of everyone is a changemaker closer to reality. As states on Ashoka website (2011) :
Supporting Social Entrepreneurs : Social entrepreneurs are the engines of social change and role models for the citizen sector. Ashoka identifies and invests in leading social entrepreneurs and helps them achieve maximum social impact.
Promoting Group Entrepreneurship : Groups and networks of social entrepreneurs working together accelerate and spread social impact. Ashoka engages communities of entrepreneurs and develops patterns of effective collaborations that change entire fields.
Building Infrastructure for the Sector : A global network of changemakers requires tools and support systems to deliver sustainable social solutions. Ashoka creates needed infrastructure, such as access to social financing, bridges to business and academic sectors, and frameworks for partnerships that deliver social and financial value.
The Skoll Foundation
The Skoll Foundation was created by Jeff Skoll, a co-founder of eBay, to promote social change. He created The Skoll Foundation in 1999 to pursue his vision of a sustainable world of peace and prosperity. Led by CEO Sally Osberg since 2001, its mission is to drive large-scale change by investing in, connecting and celebrating social entrepreneurs and other innovators dedicated to solving the world's most pressing problems. It believes that social entrepreneurs are society's change agents, creators of innovations that disrupt the status quo and transform the world for the better. It is now one of the leading foundations in the field of social entrepreneurship. Over the past 10 years, it has awarded more than $250 million, including investments in 81 remarkable social entrepreneurs and 66 organizations on five continents around the world who are creating a brighter future for underserved communities. In 2003, it partnered with the SaÃ¯d Business School at the University of Oxford to launch the first academic center dedicated to social entrepreneurship, the Skoll Centre for Social Entrepreneurship. Moreover, it also supports and partners with many pioneers and innovators in the field, organizations such as Ashoka, and Duke University's Center for the Advancement of Social Entrepreneurship (CASE).
Beyond investments and partnerships, Skull also operates two programs that foster collaboration including the annual Skoll World Forum, the premier conference on social entrepreneurship, and Social Edge, the online community at www.socialedge.org led by social entrepreneurs for social entrepreneurs. It also shares the stories of social entrepreneurs through partnerships with leading film and broadcast organizations such as the Sundance Institute, which help drive public awareness of social entrepreneurship and its potential to address the critical issues in global society (The Skoll Foundation ,2011).
The Schwab Foundation
The Schwab Foundation for Social Entrepreneurship was formed in 1998 by Klaus and his wife, Hilde Schwab. Klaus Schwab, a former Professor of Business Policy at the University of Geneva, is best known as the founder of the World Economic Forum and its Davos meetings. The Forum was founded in 1971 when Klaus Schwab brought together a number of European corporate leaders to discuss ways that businesses could collaborate to benefit the common good. The purpose of Schwab is to promote entrepreneurial solutions and social commitment with a clear impact at the grassroots level. The World Economic Forum and the Schwab Foundation work in close partnership to provide social entrepreneurs with a platform to showcase their important role in today's society. Since its creation, the Schwab Foundation for Social Entrepreneurship has financially supported the selected social entrepreneurs of its network to actively participate in the events and initiatives of the World Economic Forum, providing them with an opportunity to draw on the support, knowledge and networks of its members and constituents. In addition, the Schwab Foundation has channelled more than 50 scholarships for executive education courses at leading universities to its social entrepreneurs.
Ashoka, Skoll, and Schwab define the qualities of social entrepreneurs in broad but parallel terms. Ashoka searches for the new idea, creativity, entrepreneurial quality, social impact of ideas, and ethical fiber. The Skoll Foundation indicates that social entrepreneurs act as the change agents for society, seizing opportunities others miss and improving systems, inventing new approaches and creating sustainable solutions to change society for the better. However, unlike business entrepreneurs who are motivated by profits, social entrepreneurs are motivated to improve society. Schwab describes the social entrepreneur as 'A pragmatic visionary who achieves large scale, systemic and sustainable social change through a new invention, a different approach, a more rigorous application of known technologies or strategies, or a combination of these' (The Schwab Foundation, 2011).
These three organizations select social entrepreneurs in similar ways. Initial nominations are drawn from multiple sources, with the central role played by leaders within national non-profit and social innovation communities. For example, Ashoka has developed a global network of nominators who generate and review applications, which are reviewed in second and later stages by professional staff. Each organization inquires in detail into a potential fellow's activities, qualifications, and standing in the community. Formal control systems like governing boards tend to play a limited role.
The three organizations differ significantly in the material support each provides social entrepreneurs. Ashoka gives its fellows a living stipend, typically for three years. The Skoll Foundation provides money both operating expenses and program expansion. While the Schwab Foundation provides no monetary support to the individuals it recognizes.
These different levels of support locate the three organizations in overlapping but distinct market niches. Ashoka tends to develop relationships with younger individuals, and with projects that are more likely to be locally oriented and at an earlier stage in their development. Skoll supports larger-scale organizations, generally at a later point in their development. Schwab entrepreneurs stand in between.
All three organizations put similar and great weight on assisting their fellows build social capital. Ashoka forms a global network of current and former fellows to support collaboration within the social entrepreneurship community. It also builds ties between social entrepreneurs and those in the management and consulting worlds through a partnership with McKinsey. Skoll convenes the Skoll World Forum on Social Entrepreneurship, an annual conference that connects its award recipients with other leading figures in the field of social entrepreneurship. Schwab links its social entrepreneurs to the World Economic Forum's global network of business leaders in a variety of ways, including inviting them to its annual Davos meetings.
It is often noted that the financial sector in low-income countries has failed to serve the poor. With respect to the formal sector, banks and other financial institutions generally require significant collateral, have a preference for high-income and high-loan clients, and have lengthy and bureaucratic application procedures. With respect to the informal sector, money-lenders usually charge excessively high interest rates, tend to undervalue collateral, and often allow racist and/or sexist attitudes to guide lending decisions (Yunus, 1998). The failure of the formal and informal financial sectors to provide affordable credit to the poor is often viewed as one of the main factors that reinforce the vicious circle of economic, social and demographic structures that ultimately cause poverty. As a partial response to this failure, the practice of microcredit has been on the rise in the past two decades. Perhaps the best-known microcredit institution is the pioneering Grameen Bank in Bangladesh (Wikipedia, 2011).
Grameen Bank formally started its operation in 1983 by Professor Muhammad Yunus, who was awarded one of the most prestigious prize in the world, Nobel Peace Prize, for his pioneering role in the development of the microcredit sector by giving out small loans to poor women and revolutionizing banking for not requiring any collateral. He started to consider about how his Phd. in economics can serve the society when his country had to struggle against a terrible famine in 1974. He tried to ignore it in the beginning, it became impossible to look away as the famine intensified. During that time, Yunus taught complex economic theories to students at Chittagong University. However, he recognized a dismaying disparity between the theories and the real-life economics of a poor person's existence. Then, shortly afterwards, Yunus learned of a woman selling beautiful bamboo baskets but earning only two cents a day because of local moneylenders' high rates. Yunus immediately gave her the money she needed out of his own pocket. Out of that meeting, Yunus formed the idea of microcredit and also embarked on a new career as activist for the poor, a career that spans three decades so far and one that he is still pursuing. While another person in his situation could have easily chosen to remain in the secure position of university professor, Yunus left the prestigious title in order to aid those living in poverty. This is a brief history of Grameen Bank (Yunus, 1998).
Grameen Bank is based on the voluntary formation of small groups of female borrowers that provide mutual and morally binding guarantees in lieu of the collateral required by conventional banks. The assumption is that if individual borrowers are given access to credit, they will be able to identify and engage in viable income-generating activities such as paddy husking, manufacturing, weaving, garment sewing etc. Women have constituted the main target of the bank as they have not only proved to be reliable borrowers but astute entrepreneurs. As a result of microfinance endeavors, these women have been able to raise their status, lessen their dependency on their husbands and improve their children's nutritional and educational standards. Its successful results can be foreseen from Grameen's Sixteen Decisions that the borrowers recite these Decisions and vow to follow them :
We shall follow and advance the four principles of Grameen Bank: Discipline, Unity, Courage and Hard work - in all walks of our lives.
Prosperity we shall bring to our families.
We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses at the earliest.
We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus.
During the plantation seasons, we shall plant as many seedlings as possible.
We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health.
We shall educate our children and ensure that they can earn to pay for their education.
We shall always keep our children and the environment clean.
We shall build and use pit-latrines.
We shall drink water from tubewells. If it is not available, we shall boil water or use alum.
We shall not take any dowry at our sons' weddings, neither shall we give any dowry at our daughter's wedding. We shall keep our centre free from the curse of dowry. We shall not practice child marriage.
We shall not inflict any injustice on anyone, neither shall we allow anyone to do so.
We shall collectively undertake bigger investments for higher incomes.
We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.
If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline.
We shall take part in all social activities collectively. (Yunus, 1998 p.115-116)
Microcredit or microfinance, as Yunus uses interchangely (Yunus, 2010), refers to small-scale financial services for both credits and deposits that are provided to people who farm or fish or herd; operate small or micro-enterprises where goods are produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools; and to other individuals and local groups in developing countries, in both rural and urban areas (Wikipedia, 2011) (Kesner, 2005).
Microcredit is regarded as an instrument for to increase the employment and to enhance the income in the socio-economically depressed areas, by providing financial support to the micro and small enterprises, mostly founded and run by families. There is a growing tendency to use microcredit systems as a source for the entities that are unable to attain services from the traditional financial institutions. Its impact go beyond just business loans. The poor use financial services not only for business investment in their microenterprises but also to invest in health and education, to manage household emergencies and to meet the wide variety of other cash needs that they encounter (Wikipedia, 2011) (Kesner, 2005).
While traditional banking sector cannot reach millions of poor for whom small loans could make huge differences. There are several reasons for this. Most of the poor are rural, and they are very dispersed. They have low education levels, if at all. As a result, administrative cost of supplying loans to the poor population is extremely high. Another issue that makes it difficult to serve these customers through traditional banking is that the poor does not have any assets to use as a collateral. As a result, the poor had access to loans only through local money-lenders at exorbitantly high interest rates (Yunus, 1998).
Microcredit financing starts with the assumption that the poor is willing to pay high interest rates to have access to finance. In general, the system uses the social trust as the collateral. Although there are different micro-credit financing models, the borrowers in the pioneering models are usually members of small groups. Loans are given to individuals, but an entire group is responsible for the repayment. Hence, the borrower who does not fulfill his or her commitment to repay back will lose his or her social capital. Today, there are millions of poor people around the world who turn to be entrepreneurs through the microcredit sector (Yunus, 1998).
The UN Millennium Project identifies (2005) microcredit as 'one of the development strategies â€¦ that should be implemented and supported to attain the bold ambition of reducing world poverty by half.' A powerful endorsement of the importance of the micro-finance has come from the United Nations with the designation of 2005 as the International Year of Micro-credit.
Social enterprises are hybrid organizations that combines the characteristics of commercial enterprises with their social purposes (Dees, 1998). And the word "social" is defined around a distinctive set of global challenges that cover poverty, the environment and human rights. It blurs the boundary between private and public motives, between self-interest and the collective interest. Social entrepreneurs may be businessmen or businesswomen who define their ends in terms of the common good. Or they may be leaders of nonprofits who can define their strategy in terms of market penetration. Both gain prestige and resources as a result. But in many cases, they still need various kinds of support in their early periods. This is the reason why many organizations have featured, transformed to, or been established as social ventures. Rather than just donating money to traditional nonprofit organizations or charities, nowadays, philanthropists are attracted by these new social enterprises to invest in this new kind of funds which is obviously a sustainable way of solving social problems.
The successful models of Ashoka, Skoll and Schwab are very good examples of how social ventures are managed. While Grameen Bank is also a very good model for those who think big. However, these social organizations share the same core ingredients -- social networks, effectiveness, learning, and legitimacy.